In a paper published this month, Indian-born, US-based economist, now faculty of the Centre for International Development at Harvard, Arvind Subramanian drops a bombshell – well, for folks who care about things like measuring growth and making policy.

He says, based on various metrics, India did not grow at the heroic 7% per year between 2011-12 and 2016-17, as we were officially informed. Indeed, average annual growth crawled at a measly 4.5% per year, on average, during these five years. His paper has to be taken seriously. After all, as chief economic advisor to the government between 2014 and 2018, he was very much an insider at Delhi’s North Block, home of the ministry of finance.

Subramanian makes two important points to justify his argument. One, he uses 17 key factors, including two-wheeler, tractor and truck sales, electricity consumption, manufacturing numbers, rail freight and so on, as proxies to measure overall growth.

He finds that before 2011, most of these, especially manufacturing production and exports, moved in tandem with overall growth. Thereafter, for no perceptible reason, manufacturing growth raced ahead, dragging GDP growth upward. Manufacturing is the main culprit, but other sectors too followed the same pattern.

Two, he shows that India’s growth, measured against an average of 71 other growing nations was in line till 2011. Thereafter, compared to all these nations, India shot ahead. This, statistically, is about as likely as locating a needle on the surface of Mars – without a telescope.

There is much more to his analysis, and anyone interested can read the paper in its entirety
here.

There is no obvious political motive behind Subramanian’s paper. It is non-partisan in the sense it covers data during both UPA and NDA periods. So, the errors that have crept into our macroeconomic numbers are systemic, not driven by political diktat.

Unless the babus who compile and calculate data have been told, by every administration, to inflate growth systematically. This is possible, especially in the years after 2010, when the global economic tsunami hit our shores. We may have needed to do this to keep out global credit ratings high, to lower borrowing costs, keep inward investment flowing and so on. However, the probability of all this occurring in our chaotic bureaucracy is low.

Subramanian says, correctly, that sensible policy can only be based on accurate data. If policymakers were aware that growth was 4.5% instead of 7%, they might have stopped crowing about our ‘success’ at economic management and got more serious about reform.

This is blindingly obvious. If a patient with cancer is diagnosed as suffering from common cold, the chances of survival fall dramatically. In fact, at least part of the policy paralysis of the Narendra Modi regime between 2014 and 2019 can be attributed to complacency bred by Harry Potter data.

If for example, industrial and infrastructure recession were detected early, policy could have directly addressed these issues. Banks would have been told to be extra cautious while lending to certain sectors. The financial crisis India is staring at today, might have been averted.

Subramanian has written a path-breaking paper. He has promised to upload his data sets and coding for public use. Economists and policymakers with any sense should analyse these and follow up with more research and policies that follow from that.